Caleres Inc (CAL) 2015 Q1 法說會逐字稿

Good morning, my name is Jennifer, and I will be your conference operator today.

At this time, I would like to welcome everyone to the first-quarter 2015 earnings call.

(Operator Instructions)

Thank you.

I would like to turn the conference over to Brown Shoe Company Inc.

Thank you, Jennifer.

Good morning, and thank you for participating in the Brown Shoe Company Inc.

first-quarter 2015 earnings call, which is being made available to the public via webcast.

I'm Peggy Reilly Tharp, Vice President, Investor Relations for Brown Shoe Company Inc.

Earlier today, we distributed a press release with detailed financial tables, which is available on our website at BrownShoe.com.

In addition, slides are available on our website for you to reference during this call.

Please be aware: Today's discussion contains forward-looking statements which are subject to a number of risks and uncertainties.

Actual results may differ materially due to various risk factors including, but not limited to, the factors disclosed in the Company's Form 10-K, and other filings with the US Securities and Exchange Commission.

Please refer to today's press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements.

Copies of these reports are available online.

The Company undertakes no obligation to update any information discussed in this call at any time.

Joining us on the call today are Diane Sullivan, CEO, President and Chairman; Ken Hannah, Chief Financial Officer; and Rick Ausick, President of Famous Footwear.

Today we'll begin with a strategy review from Diane, followed by a financial summary from Ken, before turning the call back over for Q&A.

And I would now like to turn the call over to Diane Sullivan.

Thanks, Peggy, and good morning, everyone, and thanks always for joining us.

First of all, I'd really -- before I discuss the quarter specifically, and some of the initiatives that we're excited about for spring and summer, I wanted to walk you through our quarter results, which exceeded our expectations virtually across the board, thanks to solid sales growth at both Famous Footwear and our brand portfolio.

Sales of $602.3 million were up 4% year over year, excluding Shoes.com, while net earnings were up 24.8%.

Both our gross and operating margins improved for the quarter, up 30 basis points and 10 basis points, respectively.

Clearly, we were very cautious going into the first quarter, due to the potential for delays related to the West Coast port situation.

The overall impact ended up being relatively minimal, and that's really a credit to our team, who proactively navigated through these issues, while facing a very slow start to spring.

Famous Footwear in the first quarter was firing on all cylinders, and delivered a same-store sales increase of 3.1%, for a two-year trend [up] plus 4.4%.

While we had a flat start to the quarter, as the weather improved in March, so did our sales.

For the quarter, we saw increases in conversion rates, average unit retail, and pairs per transaction, and these metrics were up across all of our regions.

These improvements helped us to deliver a gross margin of 46.7%, up 160 basis points, while operating margin improved 50 basis points to 7.8%.

Our top brands continued to deliver; and thanks to our strong vendor relationships, we were able to keep product on track, despite the potential for delays related to the West Coast port situation.

Canvas continued to dominate in this quarter, and we see this trend strengthening into back-to-school.

Sandals also performed well in the quarter, despite the late start to spring.

And not surprisingly, with the extended winter, particularly in the Northeast, we continued to see boot sales up, enabling us to move residual boot inventory at a fairly nice margin.

Our best-performing categories in the quarter, like canvas, are where we've invested for back-to-school; and our results to date leave us in good position for this key selling season.

Turning to our brand portfolio, where sales of $242.3 million were up 7.9%.

At Healthy Living, we saw strong growth, with sales up 9.1% in the first quarter.

The solid growth for this platform included a 5% increase for all-in Naturalizer sales.

While wholesale outperformed retail in this quarter, which operated eight fewer stores year over year, we saw some interesting data points at retail over the past few months.

While February was tough at our retail stores, we saw positive same-store sales trends at our US and Canadian mall stores in March and April.

As we continue to improve all aspects of our Naturalizer brand, we're focused on three key areas: delivering more from our eCommerce site, elevate and expanding our consumer engagement experience, and improving productivity at our outlet stores.

In order to drive this improvement, we've added new talent to the team, and we're excited about the potential ahead for Naturalizer.

Other Healthy Living brands also performed well in the quarter, with Dr. Scholl's and LifeStride sales each up low-double digits, along with related operating margin improvement.

For our contemporary fashion brands, sales of $92.4 million were up 4.9%.

We saw strong double-digit growth at both Sam Edelman and at Vince.

For Franco Sarto, there was a planned decline in the quarter; however, we expect this brand to be up overall in 2015.

At Sam, we are still opening new retail doors, with three planned for this year, in addition to our two existing locations.

Next year, we expect to potentially add another seven doors, as we continue to realize the potential of this brand.

Looking toward the remainder of 2015, I am excited about the investments we're making in the Business.

I think you'll recall that we have signed the Diane von Furstenberg license, and we're going to be taking a modern lifestyle approach with this brand, which is really going to mirror what's been working for them at retail for their apparel.

At our June FFaNY, we will be showing dress shoes, flats, casual and wedges, all of which will incorporate DVF's distinctive style.

Price points are going to range from approximately $150 for flat sandals, to about $395 for booties.

And we are working very closely with Diane and our retail partners on placing this exciting new addition to the DVF brand.

Also, our new men's business is just getting off the ground, but you can expect to get your first look at product in December at FFaNY.

We are being joined in this endeavor by Gordon Thompson, and are in the midst of recruiting the team for this new brand.

For our omnichannel efforts, we are aligning our Famous Footwear and brand portfolio teams to better address our consumer needs.

We're focusing our attention on the consumer aspects -- the consumer-facing aspects of our omnichannel efforts, and redirecting investment into digital outreach.

We're also continuing with our two-year plan to optimize our logistics network, and build the foundation to meet our increasing omnichannel needs.

As you know, this year's major investment will be for the expansion and modernization of our Lebanon, Tennessee, distribution center, and we expect these improvements will help us expand our drop-ship capabilities, and grow our overall Business.

Now, before I turn the call over to Ken for a review of our financials, and details around our guidance for the rest of the year, I would like to thank you very much for all of your support of our rebranding initiatives.

Tomorrow, after we receive shareholder approval, we will become Caleres, and our ticker symbol will be CAL beginning May 29.

As you know, we are very passionate about the future of this Company, and our new branding helps to capture the passion behind our 137-year-old success story, and to set the benchmark for our future.

And, as of tomorrow, you can visit Caleres.com to see the full story.

And with that, I will turn the call over to Ken.

Thank you, Diane, and good morning, everyone.

For the quarter, net sales were $602.3 million, up versus $591.2 million in 2014.

Excluding Shoes.com, which was sold in December of 2014, net sales were up 4% from last year's first-quarter results.

Net earnings for the quarter were $19.3 million or $0.44 per diluted share, versus $15.4 million or $0.35 per diluted share in 2014.

This amount included $1.6 million related to a one-time tax benefit in the quarter of this year, which represented approximately $0.04 per share.

This was contemplated in our original tax rate guidance for the year of 30% to 33%.

At Famous Footwear, we improved our revenue per square foot to $216, up 3.2% on a trailing 12-month basis.

During the quarter, we opened 15 stores and closed 13, and remain on track to open approximately 50 and close 50 stores in 2015.

Let's now turn to a review of our financial metrics.

Overall gross margin for the quarter was up 30 basis points at 41.3% of sales, with improvements at Famous Footwear driving margin expansion in the quarter.

A continued shift in mix toward higher-margin canvas at Famous Footwear and improved mark-down cadence both contributed to this increase.

As Diane mentioned, we're investing in our businesses this year.

For the quarter, SG&A was 36.3% of sales, up 20 basis points over last year.

In the first quarter, this included expansion of our digital outreach for Famous Footwear, among other programs.

We also operated six more Famous Footwear stores and an additional Sam Edelman location during the first quarter of 2015 versus last year.

Finally, as we've been growing our brand portfolio, and more specifically our Sam Edelman brand, we have been investing in the people, marketing, and facilities needed to grow our brands.

Inventory at quarter end was $498.5 million, down 2.8% from $512.8 million in 2014.

At Famous Footwear, inventory was down 4.2% year over year, and down 1.2% excluding Shoes.com.

On the brand portfolio side of the Business, inventory was up 1% in support of our sales growth.

Our corporate tax rate was 25.9% for the quarter, lower than our annual tax rate guidance due to a one-time tax benefit from the conversion of one of our legal entities to an LLC.

Excluding this one-time tax benefit, our tax rate would have been 32.2% for the quarter.

Cash and cash equivalents at quarter end were $66.3 million.

Net interest expense of $4.1 million was down 20.5% for the quarter, and we ended the quarter with no borrowings against our revolving credit facility.

Our debt-to-total-capital ratio improved to 26.4% from 28.8% in the first quarter of 2014.

Depreciation and amortization was $12.6 million for the quarter, while capital expenditures were $13.9 million.

Also during the quarter, we purchased a little over 150,000 shares under our previously authorized stock purchase plan to offset any dilution for our stock incentive programs.

Clearly, we achieved some remarkable results in the first quarter, despite our initial caution around potential delays related to the West Coast port strike.

The team did a great job partnering with our suppliers and working with our logistics team to navigate this situation.

Before we begin Q&A, I would like to review our updated fiscal 2015 guidance.

With the strong sales and margin performance we saw in the first quarter, we are comfortable in raising our full-year guidance for diluted earnings per share to a range of $1.84 to $1.94.

We are also increasing gross margin guidance for the year to be up approximately 15 basis points.

Our remaining guidance for 2015 will remain the same, and that includes: consolidated net sales of $2.61 billion to $2.63 billion; same-store sales at Famous Footwear up low-single digits, with reported sales roughly flat year over year due to the sale of Shoes.com at the end of 2014; net sales for the brand portfolio segment up mid-single digits; SG&A at less than or equal to 35.4% of sales continuing to leverage; net interest expense of approximately $18 million; an effective tax rate of 30% to 33%; and a reminder that approximately $0.04 of our earnings per share in the first quarter was related to a one-time tax benefit mentioned earlier; depreciation and amortization of approximately $53 million; and capital expenditures of approximately $75 million, with roughly $22 million allocated for expansion and modernization of our distribution centers.

And with that, I would like to turn the call back over to the operator for questions.

We are holding on the operator.

One moment, please.

(Operator Instructions)

Steve Marotta, CL King & Associates.

Good morning, everybody.

Congratulations on the quarter, and thank you for taking my questions.

As it pertains to the cadence in the quarter, particularly at Famous you alluded to the quarter starting a little slow, March and April getting better.

Has that spilled into the second quarter?

It continues at about the same pace as we had for the first quarter.

Terrific.

Thank you.

As it pertains to the inventory, has there been -- have you any taken in any inventory receipts made to date a little faster than you would've expected?

Are you concerned that the inventory might be a little light and there could be missed sales?

Steve, it's Rick.

No.

Listen, we allow our vendors the opportunity if they have things early, to call us talk to us about it.

We received some things that were June deliveries.

We received a few of those goods in May, but nothing over the top, and nothing because we were worried about the sales line.

Okay.

That's helpful.

The last question, as it pertains to tax holidays.

Is there any shift in your business based on when the second quarter ends, that a tax holiday might fall into the third quarter, in particular geographies where it would have been second quarter last year?

Yes.

We have the same issue that everybody would have on that, based on that instance.

We think is about $3 million or $4 million of sales when it's all said and done, so that's -- to factor that in.

But that would we be, what we believe it to be.

It's a little bit less, based on our penetration in those markets, than you might have heard from other people.

That's very helpful.

Thank you much.

Scott Krasik, Buckingham Research.

Hello this is [Kluji] in for Scott Krasik.

So a question on growth and wholesale versus margin improvement.

Would you please dig into your expectations for growth by brand over the remainder of the year?

And also, can you give some additional color on why your brand portfolio operating margin declined in 1Q?

And second, I believe your debt became callable this month.

Do you have any plans to refinance?

Why don't I take a couple of those questions.

We're not going to go brand by brand in terms of the performance.

I can tell you that overall in the quarter, virtually across the brands all of our performance was very strong, with growth virtually everywhere.

Except for the one that I called out which was Franco Sarto, which did have a planned decline in the quarter, and we fully expect that to be up by the end of the year.

So again, good performance across all of our brands.

A little bit around the operating margin, with respect to the brand portfolio, there's a couple of things there that were really an impact to that.

First of all there was, as both Ken and I mentioned, some investment spends in both the design and marketing, the start-up of DVF as well as the investment in the Sam business.

There was a bit of that, that certainly was going on.

The second thing is that we did accelerate markdowns in some of our brands due to late deliveries, and the later spring that came.

So while we were able overall perform very well in the quarter, we certainly did have some spots where we had to address late delivery.

So there was a bit of that.

And the other thing is a reminder; now when we report our brand portfolio, it's including our retail, specialty retail stores as well.

So both our Naturalizer and our Sam Edelman stores are in the brand portfolio metrics.

So that's had a little bit of an impact also on the operating margin.

And Ken, I guess, you -- ?

Yes, I will take the debt.

So look, as of May 15, the reduction in the call premium came through, and when we look at rates below 6%, and that reduction certainly looks attractive.

We are evaluating our overall capital structure, and in light of our strategic plan, trying to make sure that we put the best plan forward.

So we are looking at that.

We obviously, understand the potential impact that it could have on lowering our overall infrastructure, and just looking to see what the best path forward is in terms of achieving our strategic plan.

Okay.

Thank you for that.

Jeff Stein, Northcoast Research.

Good morning, everyone.

So with respect to Famous Footwear, and maybe this is directed at Rick.

I am kind of curious your SG&A was up pretty sharply in that division.

I think you referenced some investments you are making in digital media.

So perhaps you can talk to us a little bit about whether or not you think you're getting the kind of return early on here that you would expect, in that type of investment?

And whether or not you would expect that pressure on SG&A to continue at Famous Footwear over the balance of the year?

Yes, Jeff, a couple of things.

We also had six more stores operating, so that was another jump to the SG&A versus the increase.

That will obviously, we expect that to even out of the course of the year, so I don't think we'll see that piece of it being involved.

We'll continue to make investments in the D2C.

I think when we're all said and done, we would expect our SG&A to be relatively in line with last year, when it's all over; but with more investment obviously directed to our D2C business.

It's a little early to say it's a victory, where we can see a huge amount.

But that, this business did trend better rather significantly that our store business.

So we think there are some improvements, and for the month of May it's up pretty dramatic.

So we're hoping some of that investment is now paying off, and we expect it to continue.

And the proof will kind be when we get to back-to-school, if we can have the kind of trends we're having today at back-to-school, it'll be pretty significant.

Okay.

Great.

And Rick, with respect to kind of regional trends, I'm kind of curious, Texas has been called out by some retailers in terms of some weakness in the oil patch, and wondering how your locations in that region are performing?

Well, we've -- it's a little bit hit and miss.

The one thing that I will say is that -- I'm just looking right now to make sure that I tell you the truth.

Dallas was up.

Houston was up.

So for where our stores are we haven't seen it yet.

The only thing we are actually seeing, and it affects Texas a little bit, Jeff, is on these tourist/border stores we might have, we have about 25 stores in that group we would look that across the country, those have been hit pretty hard in the first quarter.

The good news is it's only 20 or 25 stores.

But the difference from over the last year is starting to get pretty aggressive on the decrease in traffic in those areas.

So that's something we're watching.

There's not a lot we can do about it.

We think it's obviously based on the dollar, and people maybe not having -- as many people visiting those malls as there have been.

So I think that's the only thing we're worried about.

But in general, Dallas and Houston look pretty good for us right now.

Perfect.

And one last question with respect to Naturalizer, actually two questions.

One Diane, wondering if you could talk a little bit about the BZees brand.

My understanding is that you've expanded distribution in Nordstrom in that brand and how it's performing?

And also it, I know there's been some discussion about expanding the Naturalizer specialty stores in terms of adding additional brands to those locations.

Are you testing that yet, and if so any read-through on early results there?

Thank you.

Yes, sure Jeff.

With respect to BZees, it's going extremely well, and the one terrific thing about the quarter, is really every component of our Naturalizer brand family did well, whether it was Naturalizer or Natural Sole or BZees, all of them were very strong.

And right now, BZees is basically a sell-out everywhere.

It is really hitting a very important part of where the consumer is really buying right now, so having terrific success on that.

And we're really just in the formative state stages, to the second part of your question, about the development of the next steps on our Naturalizer retail business.

As I said, we did see some improvement as we got into March and April, but there's a lot more work to do there, in terms of taking sure we have a solid strategy for improvement in our productivity of those stores over the near-term.

So more to follow on that, and no new news for you really, it's too early.

Great.

Thank you very much.

Laurent Vasilescu, Macquarie.

Good morning, and thank you for taking my questions.

So last year during second quarter it noted that May was very strong, and June was more subdued, and then I think there was a rebound in July.

How should we think about the cadence for this quarter based on last year's strength in May?

I would think that May, obviously we're saying that our trend is about was similar to our first-quarter total trend, so that gives you an idea about May since we only have about four days left.

As far as, June and July, I think we're planning a low single digit increase, that's what we're talking about for the quarter.

So you can look at that.

I would think it would be pretty even across the two.

I don't see anything, might be a little bit less in July because the shift of the sales out of July into August, so there might be a little less in July.

But it should be similar to June, so I would still say we're still looking at that mid single -- low single-digit increase.

Okay, great.

And then, with Brown Shoe Bootmakers, can you tell us what price points you are envisioning for the brand, maybe the kind of points of distribution you're envisioning?

And then, is there any additional whitespace you want to tackle going forward?

Yes, I'd rather save all of that discussion until we get much closer to the launch time.

We're in the process right now of putting our launch plans together, and building a team, and you name it.

I think I'd probably, we'd all be best served if I held on some of those comments, and shared that with you when we have the complete strategy and all of the thoughts pulled together.

Okay.

Great.

And then lastly, my last question is, I think it was called out that you might have seven additional stores for Sam Edelman I think for next year.

How many stores do think you can envision within the next few years?

Is there a balance between retail and wholesale that you're envisioning for the brand?

It's a great question.

I wouldn't say that we have any specific targets in mind, in terms of that balance between wholesale and retail.

We certainly believe that there's easily probably 30 stores across North America.

But as we continue to expand and add the seven or three that is scheduled for the rest of 2015, we had seven for 2016, and two that are already on tap for 2017.

We'll [just see] how some of those go, and if we feel that there's a real opportunity to accelerate we will do it.

But we're really trying to be very thoughtful about the location, and where we're going to get the biggest bang for the buck there.

So we're being thoughtful as we continue to move forward for that brand, and spending a lot of time in the digital side of things as well.

So and international expansion going into 2016 and 2017.

So, lots of opportunity there.

I don't see any cap on that at all.

Okay.

Great.

Congrats again on the strong quarter.

Thank you very much, I really appreciate it.

Danielle McCoy, Wunderlich.

Good morning, guys.

Thanks for taking my question, and congrats on a great quarter.

Thanks, Danielle.

First I guess I just wanted to follow up on the West Coast port situation.

Do you guys feel like that's behind you now, or is there any potential for anything, aftermath kind of the situation in 2Q?

No, we pretty much feel like it's behind us.

All right.

Great.

And then, I was just wondering if you can give us an update on Sam Edelman apparel?

Yes, continues to perform very nicely, represents about 18% of our sales in the two stores that we have in Soho and Beverly Hills.

Really not too much new to report, Danielle, on that.

It's good, we're learning, trying to sharpen our focus on the right types of merchandise that's really going to appeal to the consumer.

So I think when we have our Analyst Day sometime in October, we'll be able to give you a really terrific update on the progress there, on the Sam brand, and all of the accessories that are really around it as well.

Great.

And then just lastly, more of a big picture type of question.

I mean, when you look at the overall portfolio, where do you see the biggest pockets for the margin expansion?

I would tell you that I don't think there's again, too much of a limit.

My expectation is around our contemporary fashion brands, they've continued to expand the margin opportunity for sure.

There's lots of opportunities still there, and also on the Healthy Living side.

We have to -- the last couple of years, really trying to work our way back to some of the historical margins that we had set a number of years ago.

So I don't think that there's any cap on it.

There's always the balance of making sure that we are delivering products that have real integrity and real value to the consumer.

We've been focused on that because we feel that's a critical part of our differentiation.

So I think there's still opportunity in terms of the balance of all of those things.

Great.

Thanks so much and good luck.

Thanks, Danielle.

Chris Svezia, Susquehanna Financial.

Good morning, everyone.

So this is the last call as Brown Shoe Company Inc.

(multiple speakers).

It is Chris.

No crying now.

I won't shed a tear.

Hopefully, you guys won't shed a tear.

Well, the name change is indicative of the results.

So nice job.

Thanks, Chris.

So a couple of questions here.

I'll start there, Famous product margin versus occupancy leverage, just kind gross margin performance really good.

So obviously, we all expect that to continue every quarter.

So but I'm just curious -- I'm joking there -- but I'm just curious, what were the drivers, can you just parcel through that, and how we should think about that for the balance of the year?

Yes, I think a couple of things.

We were able to-- the merchandise margins were actually up.

It was about probably 60% of that increase was in the merchandise margins directly.

So a lot of that is mix.

A lot of it was the opportunity that we had, our inventories were cleaner, so we had a better -- some better margins on even our clearance product.

That led to obviously a lowering of our inventory reserves as well, which would have been the other big chunk of the margin benefit, Chris.

So I think just in general, I think it's just better merchant management, is when it all comes down to it.

And that we got, obviously we're in a cycle where some of our key vendors and the brands with the canvas business and the lifestyle business are trending very strongly, and those businesses have a tendency to be higher margins than some of the athletic performance businesses.

And so, when you see that switch happen, and we're taking advantage of it, the mix helps us a lot.

Okay.

So given the fact that it seems like canvas, casual lifestyle, will continue to work here and it seems like you're managing the inventories pretty well -- some sustainability to that or do you begin to anniversary that momentum?

Because I mean, it was -- canvas was strong back-to-school last year.

So I'm just kind of curious where do you start to anniversary that?

Or no, there's still room to expand?

Probably after the third quarter.

Because I think we'll start -- we believe we don't see it having hit the top end of the curve yet.

So if that's true, I think we'll re-calibrate after back-to-school, and reassess and decide if we think it's continuing or not.

I think there's lots of components to it.

Because it's not, we talked about canvas, but there's lots of other product in some of our brands, that are lifestyle and casual driven but might be leather product, right?

So there's some of that in the mix too.

I think it's just a matter of the customer wanting that look and that trend, driven by canvas is obviously, the biggest part of it.

But those other things in there that are driving some of that business as well.

So it's a combination of stuff, but it doesn't look like its peaked, and we're going to take full advantage of it for the next quarter or two for sure.

Okay.

So like a brand like Sketchers, for example, doesn't really fall in a specific casual or technical athletic or athletic silo, but that's a piece of that?

Is that fair to say?

Yes.

Okay.

I'm curious how you're thinking about the boot business for the back half of the year, after you've had such strength in that category versus some of with the opportunities are, and maybe how you're thinking about that as we go into the back half?

I know it's a little early but just thoughts around?

I think were probably planning it low to mid single-digit increases.

Mix and content will change pretty dramatically.

I think we'll have more bootie type product, and still carry riding boots.

But we're going to mitigate how that all looks, and the assortment will shift a little bit versus where it has been.

We still think the shearling business still shows strength, and has shown strength, so we don't think that will lessen.

So we still -- we expect that to be a big part of our business.

So I think, nothing dramatically new.

I think there will be shifts in silhouettes, and where we've invested this year versus last year, has the big difference.

Okay.

And I apologize, I got a little late on the call.

But any color you had mentioned on a sandal business in terms of how it's performing in Q1, and sort of what your thoughts the season are about it?

How's it doing?

We were up mid single -- low single digits I should say, in total.

Womens was up mid single, so women's actually had a little better performance in the first quarter.

This month it's been a little spotty.

We had a good early part of May, it's been a little softer lately.

I think part of it, Chris, frankly is historic, again how the season trended last year, right?

We had a much tougher first quarter weather-wise last year.

So we had a harder first-quarter in sandals, and a better early May, early June in sandals in the second quarter, because it was the first time a lot of people could buy it.

I think that has changed a little bit this year.

We are -- our inventories are down in sandals this point in time, to the last year.

So we think we're positioned well, as far as being able to capture the right -- the sales we want to capture at good margins, and I think that's what our focus has been.

Okay.

Good to hear.

Wholesale, I'm -- just it was nice to see the rebound in Healthy Living, and again my, I apologize to you guys -- I got on this a little late on the call -- but could you maybe, what color could you provide about the specific brands?

I know there was a question earlier and you added some color.

But Healthy Living, a nice rebound, contemporary, I mean good.

Inventory seemed to be much more where you wanted.

It came down a lot, which maybe goes to your point, which you cleared out inventory.

But maybe walk through what happened in wholesale, and maybe any color on brand specifically would be helpful?

Yes.

I will give you a little bit Chris, but you probably not brand by brand, just takes a lot of time.

But overall, I would tell you that virtually every brand in the portfolio performed better than the first quarter of last year, with the exception of Franco Sarto, which was a planned decline in the first quarter, and we expect that to fully be back and to show an increase for the year.

So that was what the exciting thing, I think, in the wholesale portfolio was that overall all of the brands started to really click in and perform better than last year.

I mean, the highlights are some of the same ones that we have been speaking about.

The Sam Edelman business showed terrific performance this quarter, double-digit as it did Vince.

The other businesses that we're really pleased with our Naturalizer wholesale business did very well.

Scholl's did well.

LifeStride did well.

So it really was -- to get the 9% or so increase on Healthy Living, you had to have a lot of brands performing super well there.

So that was great.

And on contemporary fashion side, as I said, really the only one that was a little softer than last year, but we had planned it that way was Franco Sarto.

So we really like the overall performance in the quarter.

Did Via Spiga grow (inaudible) was flat.

Flat.

Okay and when you talk about some of the difficult, had to get promotional, had some port issues, how do we think -- it seems like you're pretty clean on the inventory side.

How do we think about it going to Q2, can we get back to expanding a bit on EBIT margins, after you've made some investments and you cleared up some inventory.

I mean, thoughts about that?

Yes, I mean that certainly would be our expectation.

I -- we'll have to see how things continue to trend.

But overall right now we're feeling pretty good about it, and we do not see having any port issues or any hangover there affecting our second-quarter performance.

Okay.

All right.

That's all I have for now.

Thank you, and all the best.

All right.

Thanks, Chris.

Jill Nelson, Johnson Rice.

Good morning.

If you could talk about on the slight uptick and revision on gross margin for the year?

If you could talk about kind of what segment/division is leading the increase in that?

Yes, it's primarily driven by the performance we saw in the first quarter at Famous.

Okay.

And then overall basically second quarter through fourth is essentially, your outlook essentially the same as it was in your initial guidance?

I think that's fair.

Okay.

And then just, could you recap kind what your online penetration is at Famous, as well as kind of overall company, and just broadly speaking some longer-term targets for that number?

Thank you.

Yes, Jill, directly on dot com we do just under 3% of our total business.

We also have a process where we fulfill customer sizes when they're in store.

That goes to a store sale, so it doesn't go through out dot com net, so another 2.5% to 3%.

So in total, we would count that as about a 6% penetration on our direct to consumer.

We'd like to think that our true dot com business could get to 50%, to double the size it is today.

The ship from store for customers sizes, we hope it's better as we get better about having sizes in stock.

That would be something that would mitigate that.

So we're not sure that's going to grow, but the true dot com business we would hope to get somewhere between 4% to 6% over time.

And then Jill, it's Diane, in total company we're roughly 10%.

All right, appreciate it.

Thank you.

Sam Poser, Sterne Agee.

Hello, it's Ben Shamsian in for Sam.

Thanks for taking my call.

One question for Rick, and one for Diane.

For Rick, 3.1% comp, pretty solid.

Can you, to the extent that you can parse out, how much of that is strong product, and how much of that do you think is more willingness on the part of the consumer to spend here a little bit?

Obviously, the product mix or the product categories that are trending right now are in our wheelhouse, or in places where we traditionally have been strong.

Remember it's the two-year trend too, Ben, it's [4.4%] on a two year basis which I think is really good, compared to what we've for from other places in the marketplace.

So it's not just this quarter, I think it has been something that we see building.

And again we think that will continue.

But yes, part of its -- the consumer.

Our traffic is -- has mitigated a little bit, it's still down, but it's down kind of in sync with what it was in the fourth quarter, which was better than we had seen.

The decline was better, our conversions are still very good.

So when you look at customers and transactions, how many people are actually buying.

That's starting to flatten out, and we're starting to actually to have right around flat to barely up or barely down.

And it's all about the market basket.

It's all about what they're buying from us, and they're buying more from us and paying more price -- higher prices for it, because they see the value in the product.

So I think it's a combination of us working with our partners, to make sure that the products comes in, and has properties that the customers want to pay for.

All the comfort features our people are putting in shoes, are important and we get more money for it.

So we've converted a huge portion of our inventory into shoes that have those comfort properties in them.

And that's all, I think, part of how this is all transitioning and translating into better average unit retails and better margins?

Got it.

Great, thank you.

And then, for you Diane, can you update us on your thoughts on M&A, what you're seeing out there in terms of multiples, and anything else you want to share here?

I probably don't want to share too much with respect to those point in time.

I think that you know that our primary focus number one, is to continue to drive the existing business that we have here which is -- as you can see from our first-quarter results is proving to be the right thing.

We still believe we have a significant amount of organic growth potential here in the company.

We're very busy looking at how we continue to build that against our Sam business and our Famous business, launching DVF, looking at developing a new revenue stream, with Brown Bootmakers going forward.

So that really, Ben, has been our focus in the last couple of months.

Not to say that, again, as we've always said, that if we find -- see the right thing, at the right valuation, that we'd be happy to do it.

But right now, our focus has been really on driving our business in front of us.

Great.

And just wanted to ask you about the Zodiac brand and what your plans are there, if there's any plans there?

No.

Actually, we still own it but we really have not -- we have no plans for it at this particular time.

Okay, great.

Thank you.

Good luck.

Thanks, Ben.

Jay Sole, Morgan Stanley.

Hi, good morning.

Good morning, Jay.

I wanted to just ask about the name change if I can.

How much does the name change have to do with sending a message internally, versus how much does that have to do with giving a message externally to your vendors and to your customers?

Well, I think it is a combination.

First of all, if you think about it, what we were really after was a number of things.

We thought there was -- when you think about the name Brown Shoe, it conjures up a certain image in your mind that really doesn't reflect the Company that we are today.

It's a literal name, and when you think about it, Jay, you think about a Brown Shoe.

That was kind of number one.

So it didn't really reflect the Company, the brands, the portfolio or really our ambition as a company going forward.

So that was number one.

The second thing was that we thought there was a significant opportunity to sort of link our new mission vision values.

So it's more than just the rebranding of the company, we're also -- we worked on our mission about inspiring people to feel good feet first, and we have a new set of values.

We're talking about being ferocious about fit, so there is a big story internally, Jay, about how all that is going to link with our ambitions of the future.

So it was a combination of really all of those things, but fundamentally really about where we were going.

How we wanted to evolve the culture.

And we went through -- it took about a year and a half, through this process.

And it started with frankly, being a little bit of a let's think about it as a name change, and we worked with some terrific people to help us do that, and come up with -- how do you capture the spirit of this ambition?

So this whole idea of Caleres, and its meaning, passion to grow.

But that we want to go back and really look at the history of the Company.

We spent lots of time in the archives to kind of pull out like -- not just tell a timeline of the history, but what was the DNA?

What was the spirit?

How do we unlock the spirit of what has been here?

And that's Star-Five-Star mark that you see that was really used by our founder in the Company.

I think for me, the final piece of it was, that we'd been looking and thinking about how to be expand into the men's space?

And right in front of us, was this opportunity to take the Brown Bootmaker name, which had been used at a different points in time in the past and create a new revenue stream.

So for me, ultimately it became a trifecta, the name Caleres being more about the spirit and the ambition and the attraction of talent over time, honoring our history, and using it in a way to fuel our future in the Star-Five-Star.

And then, a new revenue stream for the Company.

And actually, quite honestly, returning Brown Shoe to a consumer-facing brand, which is ultimately what it originally was.

It was never a holding company.

So it was a combination of all those things.

And to your point, no one's going to really know Caleres.

The consumer knows our brands.

They love our brands.

It's -- and our people have pride in the Company, and the name Caleres.

So that's the thought process.

Thanks, Diane.

Let me just follow up on one -- there is obviously an aspect where you could lose some name recognition, maybe perhaps with vendors.

But does it also create an opportunity to re-introduce yourself, and especially, maybe in other markets or overseas to re-introduce yourself to the corporate store buyers or other partners that you may have?

Well, to that point it's one of the side benefits -- I really -- I probably should have anticipated it, but I didn't.

It's exactly what you just said.

People start talk about you again in a different way, and they don't think about you as that -- the old Brown Shoe that -- are you the people that did Buster Brown?

Are you the people that -- the history of it.

No, they now talk about us in a totally new way, and the name Caleres also does translate globally much better than Brown Shoe did, and it just looks much more contemporary, and captures our spirits more.

So I -- quite honestly, I tell everybody put myself through all of the paces on that on a personal level, to make sure that it was great thing.

And I am so convinced of it that we've really just a set ourselves up for an amazing future.

So -- and we're honoring our past more frankly, than we ever have in all of the combination of the new components of our vision and our brand architecture.

Got it.

Thanks, Diane.

Scott Krasik, Buckingham Research.

Hello, everyone.

How are you guys?

Good quarter.

Hi, Scott.

How are you.

Sorry, I jumped on late But I just have one follow-up, Rick.

I don't know how deeply you got into your outlook for gross margins, but obviously very, very strong this quarter.

Your inventory is clean.

How are you thinking about the gross margin at Famous as we go throughout the year?

Well, thanks, Scott.

We believe we're not looking for enormous growth in the margin.

We still think there's some upside.

We're careful about that.

We want to make sure that we stay clean and current with our inventory, and we are a value channel.

So we want make sure that we keep offering value to the customers.

So I don't think that we're expecting it to be 80 or 90 basis points better than last year, but I think we still think we can have a little bit of an uptick.

So call it 10 to 20 basis points.

Even though the comparison gets much easier next quarter versus what you have this quarter?

Well, it's all relative right?

So I think we want it, again yes, even though next quarter is easier.

Okay.

And then the off-price retailers, TJ and Ross commented on it, DFW commented on it this morning.

Just there's a lot of inventory out there in the channel, you said you tried to be very clean coming out of the quarter.

Do you expect any of that to affect either your promotional cadence or the prices other people are charging in the market?

Is this the most excessive time that you've ever seen this much off-price opportunistic inventory out there?

I have done this a long time, so probably it's not the most.

It's probably ranks -- it might rank in the top 5 or 10, I would guess.

I don't know.

I mean, I think first of all, if they're spring shoes and they're sandals they are going to have to do something with them pretty quick, or they're going to hold them until next year.

Which -- we've never -- we actually stopped doing that 15 years ago, on trying to sell last year's shoes this year.

That never worked very well for us before.

So I don't know how much they can actually believe that they can put into the marketplace and be successful with, because at someplace along the way, however cheaply you bought it, what price will it go out at, if there's that much inventory to do?

So, I don't see it.

I don't -- I think there will be some pressure.

I think the next 45 days could, probably be interesting Fourth of July, all those kind of things could be pretty aggressive.

I think we'll watch.

We look at the selling every day, and we look at the selling every Monday and we decide what we need to price that week, if we think there's times to move goods.

We have systems to help us do that, so we're paying attention to all that, but we haven't seen anything that says it's going to be dramatic.

And again, I think it's -- I don't think this is affecting our canvas business.

I don't think this is affecting our affecting our athletic business.

So remember, those are probably over 50% of our total business when we start thinking about it anyways.

So I think you're talking about a relatively small portion of our inventory, or our business that will be impacted, if at all.

That's a good perspective.

Okay.

Thanks very much.

We have no further questions in queue at this time.

Thank you very much for joining us on our first quarter earnings call, and look forward to seeing you in the next week or two in New York, and again at our second quarter call later on in August or September.

Take care.

Thank you for your participation.

This does conclude today's conference call, and you may now disconnect.